Call for Evidence

June 2015

Energy and Research Division, NITI Aayog

Call for Evidence

India Energy Security Scenarios, 2047 Version 2.0

Open: 15th June 2015 to 6th July 2015

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What are we working towards? – A brief background

Energy is a strategic input for any developing economy, particularly so for India. However, India is not

very well endowed with energy resources in proportion to its large population. While it supports

17% of the world’s population, it only has 0.4%, 0.4% and 6% of the world’s oil, gas and coal reserves,

respectively. This has led to a large import dependence which has been sticky at nearly 35% of its

annual demand over the last several decades. This has led to intensive efforts to exploit India’s coal

reserves and explore oil and gas. However, due to a number of structural issues, both exploitation

and exploration of energy minerals have been poor so far. India’s renewable energy potential is vast

and holds a great promise. It is evident that an integrated approach towards developing domestic

energy resources, and giving special attention to the ones in which India may have higher potential,

has been engaging the attention of India’s economic planners.

On the other hand, there is a large scope for effecting efficiency in energy demand sectors.

Electrification of this demand could also ease India’s import dependence, as there would be a shift

from liquid fuels to coal and renewable energy. This could be particularly do-able if India’s renewal

energy potential could be tapped, and a major demand shift could be effected in the cooking and

transport sectors, which are presently heavily dependent on petroleum products. There is also an

immense possibility of electrifying the irrigation pumps as well as telecom towers, which presently

consume diesel in sizable volumes.

Against the above background of a large import dependence, and the difficulty in making structural

shifts in the energy consumption pattern of India, the Indian economy has been facing great

hardships on the energy front. The latter include depleting foreign exchange reserves to support the

large energy import bill, challenge of attracting energy sector investments, assuring un-interrupted

supply and subsidizing energy to the poor. Other problems associated with dependence on imports

include, issues of supply disruption, pressure on the exchange rates and volatile international

oil/gas/coal prices threatening the energy security of India.

All the above reasons make it vital for India’s economic planners to strategize India’s energy sector,

and help in enhancing energy security of the country, which seems to be the single most important

objective of the national energy strategy. This calls for a multi-pronged strategy both in the area of

energy demand and supply, along with multiple facets of energy policy including pricing, regulation,

distribution and an overseas strategy to obtain secure energy supplies at stable prices. Technology

is also a vital input, particularly in the area of energy efficiency. Therefore, India’s energy strategy

would necessarily comprise action on both demand and supply sides with due consideration to policy,

finance and technology.

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What is India Energy Security Scenarios, 2047?

The India Energy Security Scenarios, 2047 (IESS, 2047) is a tool developed by and housed in the

Energy and Research divisions of NITI Aayog. The first version of this tool was launched on February

28, 2014 and can be accessed at www.indiaenergy.gov.in . The second version of this tool (Details

in the next section) is under-development and near completion. This ‘Call for Evidence’, as

mentioned later in this document is for IESS, 2047, Version 2.0.

In view of the rising energy demand and sticky import dependency at nearly one-third of all primary

commercial energy demand of India, the need for long term energy planning remains as strong as

ever. It has also become important to look at the long term, i.e., the next 3-4 decades, looking beyond

2030 and 2031-32, which are the terminal years of several earlier Indian energy studies. As energy

sector decisions have huge cost implications, energy related investments also ought to have long

term perspective. Keeping the above in mind, the erstwhile Planning Commission, now NITI Aayog,

decided to undertake an energy scenario building exercise early in the year 2013, called the India

Energy Security Scenarios, 2047. It has been built as a knowledge portal, combining IT applications,

behavioural aspects, energy related emissions, local resource endowments, all sources of energy

supply and demand, technologies of global scale as and when they are inducted in the Indian system,

and cost-time parameters.

The IESS, 2047 has been developed on an Excel Format with a Web Tool front end, which allows user-

friendly (accessible and usable even by the aam admi) dynamic, graphic representations of the

chosen outputs of the energy demand and supply levels leading up to the chosen terminal

year. Energy security has been adopted as the major outcome of the exercise. The tool is amenable

to adoption of other outputs as well, which can be further developed over the years. The present

(public) version of the tool integrates energy security, land and carbon dioxide emissions as its

outputs, Version 2.0 adds the outputs of GHG emissions and cost parameters, and the future versions

could incorporate other implications like water, labour, energy intensity, etc. as outputs.

The IESS, 2047 is expressly an energy scenario building tool. The guiding ambition of this is to develop

energy pathways leading up to the year 2047, comprising of likely energy demand and supply

scenarios. The tool has been so developed, that it can create hundreds of scenarios with different

combinations of levels/efficiencies of energy demand and supply sectors. The primary use of IESS,

2047 is to project scenarios of percentage of the total energy supply (as per the pathway chosen by

the user), that may be met by imports. Hence, while the tool segregates the demand for energy by

sectors, and supply numbers by sources, it also generates energy import numbers and cost by source,

and aggregates the same to offer total energy imports under different scenarios. The tool also

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enables the user to witness the implications of his/her choices on land area and emissions. A high

share of solar energy and wind, too, would have implications on land requirement, which is a scarce

resource for a dense country like India. As the scenarios generated for different sectors are linear

(either rising or falling, as the case may be), the graphic representation of the data sets is simple and

easily understandable even by non-energy experts.

The tool has been built with the help of a wide pool of knowledge partners from the Government,

Industry, Think Tanks, Non-Governmental organizations, International research agencies and the

academia. The networking of top energy related think-tanks with energy Ministries, is a high water

mark achieved in this exercise. This has added to the intellectual quality and transparency of the

entire exercise. The tool also has a very strong social media component aiming to disseminate the

results and the messages of the IESS, 2047 to the public. It is also a completely open-source tool and

can be considered a one-of-a-kind data repository for energy sources in the country.

A detailed examination of the tool will reveal how changes in choices of energy demand and supply,

yielding different levels of energy import can help a planner to decide the sector(s) in which

interventions can be more effective to meet the desired policy objectives. The tool allows the user

to delve deeper into the levers of energy demand for all the demand sectors, and enables finding out

the impact of different levers on energy demand. Since the tool also offers fuel-wise data, it is also

possible to see as to which demand sectors ought to be influenced through suitable policy measures,

to curb consumption of such fuels in which India is more import dependent. Hence, it is a handy tool

to use, for those interested in understanding the energy security dimensions of the country.

NITI Aayog has in the past, and is also presently, in the process of conducting nation-wide outreach

workshops to promote the usage of this tool and involve more people in the exercise for consensus

building and creating awareness about energy policies. Workshops have been conducted in

Government ministries (Bureau of Energy Efficiency, Ministry of Coal, Ministry of New and Renewable

Energy, Ministry of External Affairs, Ministry of Petroleum and Natural Gas, Ministry of Power,

Central Electricity Authority, Ministry of Railways, Directorate General of Civil Aviation, Ministry of

Road Transport and Highways etc.), as well as for interest groups such as academia, industry etc. in

different parts of the country, witnessing participation from the Industry, local academia, state

governments etc. and industry bodies (FICCI,CII etc.) A variety of organizations are aiming to replicate

this practice for different states and sectors. The IESS, 2047 has also been proposed to be

incorporated in the curriculum of IIT Bombay and has evoked interest in Indian and international

researchers for extension of academic pursuit.

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What is new in Version 2.0?

We, at NITI Aayog, with the support of our wide range of knowledge partners, are constantly working

towards improving the analytical credibility of the IESS, 2047. Since the energy scenario of India is

changing at a rapid pace, we thought it best to work on newer versions of the model with updated

data sets, inclusion of new sectors and technologies that are gaining importance, and factoring in

some new implications like the cost to the economy of different interventions etc. to enable the users

to make better informed decisions. Also, keeping in mind the rising growth rate of the country and

long term perspective , we have also offered three levels of GDP growth to the user, on the basis of

which the energy demand outputs are generated. A detailed exercise was undertaken to determine

the different elasticity of energy demand in different sectors to three assumed GDP growth rates.

Version 1.0 of the IESS, 2047 created scenarios around our choices of energy demand and supply

while analysing emissions and land-use as its implications in the context of energy security. Version

1.0 also tried to incorporate all the major demand and supply sectors of energy and the technologies

which will make those demand and supply choices possible. Having learnt from the process of

development, engagement of knowledge partners, and feedback from the academia, industry and

other stakeholders, it made perfect sense to constantly update the tool and make it more

comprehensive. Along with the updation of data and projections in a majority of sectors, to reflect

Some resources to help you get an overview of the IESS, 2047 and its components:

1. IESS, 2047 Version 1.0 website: http://indiaenergy.gov.in/

2. Understanding the levels: http://indiaenergy.gov.in/about_under.php

3. What the IESS, 2047 is, and isn’t “: http://indiaenergy.gov.in/about_what.php

4. Our stakeholders and knowledge partners: http://indiaenergy.gov.in/vision_stake.php

5. Our wide consultative process for Version 1.0: http://indiaenergy.gov.in/about_consult.php

6. How the tool works: http://indiaenergy.gov.in/about_howto.php

7. Detailed documentation for each sector: http://indiaenergy.gov.in/publication.php

8. Some example scenarios: http://indiaenergy.gov.in/model_example.php

9. Key results of Version 1.0: http://indiaenergy.gov.in/key_message.php

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the changing energy scenario, a snapshot of the value additions in version 2.0 are presented as

follows:

Additional Choices

offered to the user

Scenarios for the Growth of the Economy

Keeping in mind the fluctuating economic growth conditions of the country, we

have offered three scenarios of GDP growth to the user (7.4% CAGR, 6.7% CARG

and 5.8% CAGR, all till 2047), on the basis of which the end-energy demand outputs

are generated. Naturally, at higher GDP growth rates, the energy demand is higher.

The default scenario is the first one, i.e. 7.4%

Costing

For a policy maker, it’s very important to analyse the trade-off of investing a rupee

of exchequer budget along various technology options, or between demand and

supply sector interventions, for e.g., energy efficiency and renewable energy

options in a pathway, and the savings in fuel. To bring this quantitatively into

perspective, we have included Capital, Operating, Fuel, Infrastructure (only on the

supply side) and Finance costs for each of the sectors (both demand and supply)

into the IESS Version 2.0. The tool generates scenarios of cost implications of such

choices.

Three options for each of the aforementioned cost categories

Keeping in mind the range of cost options that may pan out in the long period under

consideration for various technologies and processes in the future, we have offered

the user an option to choose between high, low and point estimates for costs.

Depending on the cost option chosen, the tool aggregates the costs for the users’

chosen pathway and enables him/her to analyse the incremental cost of the chosen

pathway with respect to the ‘determined effort’ scenario costs (Level 2) and also

relate it as a percentage of India’s GDP. Hence, the tool does not generate total

costs, but the increment/savings in the chosen pathway vis-à-vis all Level 2 choices

pathway.

Emissions

Keeping in mind the increasing focus of India on improving our air quality especially

in urban areas, the IESS, 2047 takes a deeper dive into estimating the energy

related emissions by including major Green House Gases (GHGs) - Methane and

Nitrous Oxide along with Carbon Dioxide. To enable the user to have a more

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comprehensive picture, we have also included fugitive emissions from production

and mining of fossil fuels. However, this tool does not take into account all

emissions (from agriculture etc.) or sinks, as it is merely capturing energy related

emissions.

Stress Tests With the new Renewable Energy targets of 175 GW by 2022 in place, there is

increased concern about the ability of our grid to absorb the generated electricity.

As a stress testing exercise, Lawrence Berkeley National Laboratory, U.S.A ran 20

scenarios of the IESS, 2047 on their Grid Planning and Dispatch model for India.

The main objective of this simulation exercise was to assess the preliminary

technical feasibility, in hourly intervals, of the identified scenarios of the IESS and

broadly identify the storage and balancing electricity requirement for the grid

integration of renewable energy. This is supplemented by the chosen level of the

Storage technologies that have also been built into the tool.

New Technologies Technologies for Hydrogen production for Transport and Telecom.

Storage based technologies – segregated by power and energy storage.

Introduction of Fuel Cell Vehicles in Transport.

Government

Announcements

To make the IESS more relevant in the present policy space, the tool, while

developing scenarios for Version 2.0 has also factored in the recent policy

announcements of the Government including Housing for all by 2022, Pucca House

Access, the new renewable energy targets for Solar, Wind and Biomass, R-APDRP,

the National Smart Grid Mission, Energy Conservation Building Codes for

Residential Buildings, Standards and Labelling programme for Appliances,

Introduction to affordable housing etc. These announcements have been built into

the demand scenarios as targets of the nation.

Supply Sectors Renewable energy:

Introduction of scenarios for Solar Water Heaters

Introduction of Solar Roof Top Scenarios

Changing pre-existing scenarios to factor in the new government targets for renewable energy

Fossil Fuel Electricity Generation:

Scenarios for phasing out of Diesel Based Generation

Separation of Coal production into open cast/underground mining along

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Calculative of fugitive emissions for fossil fuel production

Electricity Imports and Exports

Introduction of scenarios for Cross-border electricity trade exports (in addition to

imports, presently there in Version 1)

Transmission and Distribution

Introduction of costs of Transmission Grids and the National Smart Grid Mission

Demand Sectors Transport

Addition of Fuel Cell Vehicles as a technology choice for the user

Costs for rolling stock

Demand activity based on GDP elasticity

Buildings

Bottom up approach, based on activity demand and elasticity of building space

to GDP, for estimating space cooling and heating demand

Estimation of space cooling demand based on thermal comfort and heat

conducting ability of different building materials

Offering 3 scenarios each around external temperature rise and the structure

of urban spaces till the year 2047.

Sub-categorization of Residential Urban, Residential- Rural and commercial

buildings and estimation of energy demand for each category.

Estimation of hot water demand for both commercial and residential buildings

Factoring in ‘Housing for All by 2022’ and Affordable Housing.

Appliance ownership patterns depending on GDP elasticity.

Industry

Restructuring of Energy Efficiency scenarios to include more drivers along with the

PAT scheme.

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Telecom

Addition of other solutions for replacement of diesel in the telecom sector. Version

2.0 considers solar rooftop, wind, bioenergy and hydrogen solutions for

replacement of diesel, as opposed to only rooftop solar solutions in version 1.0.

What role do you play in this exercise?

The road to 2047 will not be a straight one. Our energy demand and supply sectors will witness

substantial changes on the financial, behavioural, climate change and policy fronts. We cannot talk

in precise detail about how the energy scenario of our country will pan out in the years to come, but

we cannot abandon long term planning either. Investments such as power plants, metro transport

systems, nuclear power plants and energy transmission infrastructure will not be forthcoming unless

the long term energy pathways are clear, and the Government thinking is made public on these

issues. In order to make informed decisions, it is helpful to have a tool which enables one to compare

and contrast the implications of one choice with respect to the other, even if it not possible to predict

the future with certainty. This is the rationale behind building scenarios, and allowing the

stakeholders to see the range of possible outcomes for appropriate decisions.

If you are reading this, you are also a stakeholder in India’s energy scenario. This tool will enable wide

populace, general public, industry, academia, think tanks, NGOs and a variety of other organizations

and individuals to contribute towards the refinement of this exercise.

Our call for evidence period will last for three weeks (15th June 2015 to 6th July 2015). We understand

that in spite of our best efforts and ambitions to make this simple and user friendly, this excel model

may be a little complicated to work through. Therefore, to enable you to get a snapshot of each

sector, we are also enclosing a zip folder of our one-pager documents, which will allow you to get

a glimpse of each sector in one quick view. You can look through the sector sheets at the bottom

panel of the excel model and delve deeper into our trajectory assumptions for different sectors. You

can play around with the radio buttons on the main page of the excel tool to see the impact of your

choices on the implications that this tool generates (E.g: Import Dependence, Land, Costs, Emissions

etc.) We look forward to receiving your inputs which will help us fashion the final product, which we

hope to launch as soon as we have considered your feedback.

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How to reach us:

If you have specific comments on the different sectors, the assumptions or the implications, please

do write in to us at iess-2047@gov.in or at astha.ummat@gov.in

You can also send in your comments by post at the following address:

IESS 2047 Secretariat

Room 543, 5th Floor,

NITI Aayog, Sansad Marg,

New Delhi – 110001

India

Ph: 011-23042554

Main Messages:

As mentioned above, IESS, 2047 enables interested users to generate implications of their choices on

India’s import dependence of energy supply, likely emissions from the energy sector, land

implications and costs. The Excel model in the Tool is able to factor in implications of choices in a

disaggregated manner, i.e. the impact of individual demand sectors or energy supply choices can be

observed and their share in the total implications examined. For example, the impact of an efficient

transport system viz-a-vis an inefficient one can be captured by keeping all the other choices uniform

and varying the choices of the transport sector only. Similarly, the impact of supplying electricity in

a greater measure by renewables vis-à-vis coal based power can be observed across the

aforementioned implications, viz., import dependence, emissions, land and costs. During the call for

evidence, it is expected that viewers will offer their observations/comments on the scenarios so

generated by the Excel model.

The implications of the default energy pathway, i.e. ‘Determined Effort’ (Level 2’s) both on demand

and supply sides can be seen in the downloadable model. It may be noted that IESS Version 2.0 also

offers three choices on the likely GDP growth for the Indian economy between 2012 and 2047. In

the default case, the highest GDP growth rate amongst the three scenarios of 7.4% has been selected.

As per the default case, the implications of the current choices on the Indian economy have been

indicated to the following:

Import Dependence:- The import dependence for the chosen pathway on an overall basis for

energy supply is expected to more than double in the year 2047, i.e., from the present 31%

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level (of primary energy) to 60% in 2047. The table below captures the likely import

dependence across prominent fuels, i.e. coal, oil, gas and collectively, on an overall basis:

Fuel Coal Oil Gas Overall

2012 18% 77% 23% 31%

2047 62% 88% 49% 60%

GHG Emissions:- As regards GHG emissions, the Tool generates the per capita GHG emissions

both from energy consumed and process emissions from the energy sector as projected to

rise should the energy pathway be as per ‘Determined Effort’ scenario. The Tool estimates

that the same is likely to rise up to 5.5 tonnes per capita in the year 2047.

Land:- The Tool also generates the implications on land requirement which will be an obvious

outcome of bio-energy and renewable energy supply levels. In the default case, the Tool

projects requirement of nearly 6 million hectares of land to be brought under energy related

usages. The Tool would generate changes to this baseline requirements, should the user

adopt a different supply pathway.

Costs:- The analysis on costs is different from the other implications because the Tool

presents incremental costs/savings should the user adopt a different pathway than the

Determined effort one. Therefore, one might see a nil cost implication at the present default

scenario. Changes in the way energy is demanded and supplied would create projections of

energy costs by demand sector and also for financing and fuel costs. It may be added that the

tool does not capture the additional infrastructure requirement of the different pathways

chosen. However, the same has been built into the excel and can be accessed through the

various sector sheets (E.g: XII.a for Transport Infrastructure Costs) for a complete overview

for costs to the economy.

The viewer is encouraged to play around with the Tool and see the implications of changing the

energy choices from the ones that have been offered. We are keen to hear all views that are at

variance with the projections and would of course be grateful for supportive reactions as well. The

viewer is also encouraged to go into sector sheets in the bottom panel of the model (details can be

found in the ‘Structure of the model’ sheet) for detailed analysis of all demand sectors and supply

sectors as well as the implications thereof. This would help him/her examine the methodology and

assumptions leading up to the numbers that have been adopted in the Tool. The one pagers on each

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of the demand and supply sector which have also been provided along with the Excel Tool would also

be of help to the viewer to understand the methodology used to generate the numbers.

Further Steps

Our team at NITI Aayog is also parallely working to get the web-interface up for easy and dynamic

navigation before we launch the complete model.

If you have any suggestions/comments on the communication strategy, outreach of this model,

partnerships with organizations to help propagate the use of this tool, post the launch, please do

send in your ideas at the aforementioned email address.

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ANNEXURE A

Costs in the IESS 2047

Objectives: why include costs

The first version of the IESS 2047 didn’t include cost information. As the Indian economy is

significantly cost sensitive, common reactions to analysis of future energy pathways are “How much

will the energy security cost?” “What will sustainable development cost?” and “How much will my

pathway cost?” In the Version 2 of IESS we have undertaken an exercise to add information relating

to cost implications to the tool to answer some of these questions. However, it may be added that

this is an ‘energy calculator’ and not a ‘cost calculator’. Hence, it does not provide the total cost of

energy related investment or costs, but the ones related to additional cost or savings that are

obtained by changing the efficiency of the energy pathway including fuel switching (choice of levels

on both Demand and Supply sides). This cost analysis extends the feasibility debate, allowing users

to consider the economic implications of their energy choices.

“The cost analysis of IESS 2047 reflects all of the energy related monetary implications of migrating

from one pathway to another”

[Note: - The model calculates the differential cost of moving from a baseline pathway (which is all

Level 2) to any other pathway. Hence, the baseline costs are normalised to zero and a different choice

results in increment or reduction by the number generated. The four effort levels of choice (Level 1-

4) that are available to the user are based on what is technically possible, without any consideration

of the financial consequences]

Methodology

Predicting future costs for technologies and infrastructure is near impossible. And even if costs are

estimated through complex simulations, it is being realised that almost all of these costs i.e Fuel,

Capital, Operational and Financing are highly un-predictable in the long run (forecasted vs actual) by

virtue of technological breakthroughs, research and innovation. The IESS is a tool that offers users an

aggregate picture of likely energy demand, domestic supply and implications of the above two factors

on India’s energy security. As noted earlier, an estimate of cost of different choices adds value to the

analysis of future pathways. Therefore, while acknowledging that it is not possible to predict future

costs, and neither does this tool capture all the costs, particularly infrastructure costs, an exercise

has been undertaken to bring some realism by offering a range of costs in this analysis. The IESS offers

an opportunity to the user to select from three cost choices (scenarios) High, Low or Point estimate

for each technology on the Demand side and also for the fuels on the Supply side. The Excel model

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in IESS sums up all the costs as per the cost choice (of the three scenarios) for the chosen pathway

(combination of Demand and Supply). Thereby, the user can see the implication of his/her choice

(pathway) on the overall cost of the chosen pathway, and also see the cost of specific

categories/sectors and the ratio of the cost to the overall economy GDP, till 2047.

It may be noted that in order to simplify the analysis, the tool uses only ‘real prices’ and not nominal

ones. Hence, the impact of inflation is not factored-in and only price movements are captured (only

to avoid estimating inflation). To capture the range of future costs, three (user defined) estimates

have been made for each intervention based on exhaustive literature review and available domestic

estimates, the components of these ranges are -

High Cost Scenario – This is said to be the maximum possible cost that anyone would possibly be

paying from now till 2047 for supply technologies, efficiency improvements, infrastructure, fuel costs

and financing etc. It is logical to presume that new technologies will only become cheaper as scale of

deployment increases. Therefore, the present cost is taken as the ceiling. However, this may not be

true in some cases (e.g: Nuclear) which has been factored in based on expert consultations. The

reasoning behind falling or rising high costs are as discussed below -

Even in case of some conventional (well established) technologies where most of the

technical innovation and research breakthroughs have already happened, and with low

hanging fruits having been availed, the cost would increase. Hence the estimated cost upto

2047 will be substantially higher from today’s cost. Eg – in case of Coal and Gas based TPP.

But, as regards new technologies, the high cost could be a straight line suggesting that with

further research, innovation and technical breakthroughs, costs would only come down.

Therefore, even the highest cost in 2047 will be the same as what we a paying today. Eg –

CCS, LED, etc.

Low Cost Scenario – This is said to be the minimum possible cost that we believe we would possibly

be paying from now till 2047for any particular technology, infrastructure, fuel type or financing. This

is the expected lowest price to which the costs may fall/or remain for the relevant technology/fuel

etc. This varies significantly as –

In case of established technologies the low cost range will either remain the same or reduce

marginally. This will be true for those technologies where costs are rising from the present

for the High cost scenario (as mentioned above).

In case of new technologies the low cost estimates suggests that the price will reduce

substantially till 2047 due to research and innovation. Eg –Solar PV, On shore and Off shore

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wind. Here, expert consultations have been undertaken to arrive at the level to which the

prices may fall.

Point cost Scenario- is the simple average of both the high and low cost estimates of each year. This

is the default cost assumed in the tool only with an aim to keep the baseline outcomes devoid of any

bias from our side. However, the user can play around with choosing any of the three cost estimates

as per his/her choice. Adopting different estimates for technologies while building an energy pathway

is a value-add in the IESS V2.0, as it allows the user to estimate the range of costs that the economy

risks when substituting one technology for another.

Decoding Costs Estimates

To capture the high and low range estimate of all future costs for present and upcoming technologies

of 45 sub sectors with more than 100 technologies is a big challenge. Hence, the tool merely captures

the annualised costs related to the technology related choices, estimated for one unit consumption

of the level of service. The tool offers information of cost of delivering a PTKM, BTKM, units of

irrigation by pumps, producing a unit of an industrial product say steel, cement etc and so on. It goes

on to estimate the cost of delivering the above services by different technologies in each sector.

Hence, there will be a cost incidence by changing the technology on the demand side, and saving in

energy on the supply side (as the fuel efficiency of technologies is different). For example, on the

Transport side, for the same quantum of transport (measured in Passenger Line Km basis), if the user

chooses to enhance the share of let us say, public transport instead of private transport mode, or

induct EV instead of IC engine powered transport, the tool captures the net additional cost that will

accrue in the rolling stock (vehicle cost, fuel cost, financing cost and operating cost). Hence, the

following energy related costs are captured in the model –

the capital costs,

operational costs,

fuel costs and

financing costs

Note: You can find all the consolidated cost data in the cost absolute sheet of the model.

1 Capital expenditure: This relates to the capital cost of the asset that will directly be involved

in the delivery of service – car/ bus, railway rolling stock, efficient irrigation pump, efficient

tractor etc. But, the tool only captures the cost of the efficient technology and not the

infrastructure. For e.g. the difference in the cost between the conventional and efficient

technology (process) in Industry sector is captured, and not the cost of steel mill or cement

mill etc. When the process changes, then there will be a cost implication – either a hike due

to efficient technology (when we move from level 2 to Level 3 or 4) or reduction in cost if we

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move to an inferior technology (level 1). The tool merely captures costs associated with the

change in technology. Capex values have been estimated by the knowledge partners based

on inputs form government agencies and extensive literature reviews. Sector specific capital

costs are at the bottom of each sector sheets which is then linked to the final cost absolute

sheet. In the capex we tried to capture the full costs of capital components, from the air

conditioner installed in individual homes, through to large infrastructure projects.

2. Operating and maintenance costs: In order to simplify estimation of this cost, a fixed

percentage of capex is captured at the bottom of individual sector sheets and finally linked to

the final cost absolute sheet as the opex. We captured full cost of running and maintaining all

of the required technology and infrastructure. Naturally this will vary across the three cost

scenarios due to the base costs being different.

3. Fuel costs: Here again, the tool offers a range (high, low, point) of costs of all energy fuels i.e

coal, oil, gas, uranium, bio mass etc. The forecasted fuel costs are mostly derived from GoI

estimates, IEA, EIA and other sources. For domestic supplies, wherever the government policy

is of pricing different from internationally traded prices, the same has been captured.

However, for imported fuels, the estimates of international agencies have been adopted. In

the long run, however, it is assumed that domestic prices will also align with international

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prices. This exercise, is however, without prejudice to the decisions that Government may

take, and is no reflection of the thinking in the later of pricing policy.

4. Financing costs:

Many of the assets in the IESS 2047 involve significant upfront investment – in particular,

electricity generation technologies, gas infrastructure etc. The cost of financing these lumpy

investments can be a significant component of their costs. Here again, there is a possibility that

private and public investments may receive different interest rates (steel plants versus metro rail

projects). However, the default costs capture the point estimate (the middle range) rates, leaving

the user of the tool to adopt the estimate as per his/her expectations. Interest rates in India are

much higher than international ones, but in the long run, there may be a convergence. Moreover,

the rates are also real rates and may be considered as devoid of the nominal rate (inflation)

component itself. Hence, the rates offered may be considered on the above rationale. However,

it may be noted that as the tool uses real prices, when calculating the present cost of the pathway,

there is no discount rate applied as no interest rate is applicable. However, if the same costs were

to be added up into a future date, let us say 2047, then the interest rate would apply from the

year of expend until 2047.

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Choice of interest rate - the interest rate a project faces is likely to depend on the risk premium

associated with the technology and with the source of funding, for example through private

markets, government bonds, or general taxation. In the High case we have taken the interest rate

as 6% and in low as 2% but the user has a choice to change that in the model.

Choice of loan period - The period over which the cost of financing a project is repaid can vary in

response to a number of factors. When considering loan periods, it is worth distinguishing

between:

Asset life – the period of time an asset could be used for, determined by technical factors.

For example, a CCGT gas plant could be used for a maximum of about 30-35 years.

Economic life - the period of time over which an asset is likely to be economically viable

to use. This may be less than the asset’s technical life due to rising maintenance costs or

obsolescence. For example, the CCGT plant mentioned above will typically be retired after

around 25 years.

Typical investment horizon – lenders may wish to recoup their costs before the end of an

asset’s economic life. For example, investors may not be prepared to wait until the end of

a nuclear power plant’s 40 year economic life to see a full return on their outlay.

The most technically accurate approach would be to use the economic life of assets to determine

when to build new capacity in the relevant technologies, and then spread the relevant finance

costs across the typical investment horizon for that technology which is what we adopted in our

model.

Important caveats and limitations of the analysis

There are a number of important caveats to bear in mind when interpreting results from the IESS

2047 -

No impact on electricity or fuel prices - Results from the tool are presented as Rs/person/year,

but this should not be interpreted as the effect on end users’ energy bill. The impact on energy

bills of, say, building more wind turbines will depend on how policy is designed and implemented

(e.g. via tax, subsidy, regulation, etc). Taxes and subsidies are out of the purview of this work, as

this tool captures economic costs. The Government uses perhaps, more sophisticated models to

examine the effect of specific policy interventions on electricity and energy prices.

Incremental costs principle - The model calculates the differential cost of moving from a baseline

pathway (which is level 2) to any other pathway. The model presents cost results using the default

costs (point estimates) unless the user adjusts the cost assumptions. In this instance, the

incremental cost of one pathway over another is calculated very simply as the difference between

the two pathways. For example, if “baseline” pathway costs Rs 1,000 and the “abatement

pathway” costs Rs 1,200, then the incremental cost of the abatement pathway over and above

the baseline is Rs 200. Hence, this is NOT a cost Calculator and merely helps compare the cost of

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migration from one energy pathway to another. The information provided in the IESS v2.0 could

help the policy makers/users to estimate the cost of achieving higher energy security or reducing

carbon emissions from the energy sector, and nothing more. It does not, anyway, capture the

large infrastructure involved with the usage of major energy shifts (to more metros rather than

roads). Neither does it calculate the cost of constructing a facility but only the energy use related

differential costs (in a steel mill it captures the cost of changing the process to a different one,

and not the cost of the entire steel mill).

Estimates exclude important costs associated with the move to a low carbon economy.

Specifically:

- welfare costs such as inconvenience of living in buildings with less comfortable temperatures

and potential inconvenience of travelling less

- wider macroeconomic costs

- R&D costs

- the cost of most existing infrastructure (e.g. the capital and finance costs associated with

existing power stations)

- the policy costs associated with regulating and enforcing future policy

- opportunity cost (e.g. the opportunity cost of investing in low carbon technologies rather

than, say, better schools or hospitals, is not captured)

- public safety risks (perceived or actual) associated with incumbent technologies e.g. oil

extraction, nuclear, CCS

- long term, not short term analysis. The Calculator is best suited to long term analysis of the

energy system in 2047 rather than policy implications over 2020s.

- User driven model, not market based. The IESS costs the combination of technologies chosen

by the user. Consequently it does not take into account price interactions between supply

and demand. For example, if the cost of, say, electricity generation increases then the

Calculator does not capture any elasticity of demand response from the electricity user. Cost

optimising models better handle such price responses.

- Costs are exogenous. Technology costs do not vary depending on the level of technology roll

out. However if the user has beliefs about how they would expect the unit costs of particular

technologies to change in their pathway, they can sensitivity test the effect of varying these

assumptions.

In Summary: A scenario building exercise is incomplete without offering the cost of achieving the

stated objective. If India has to make ‘shifts’ in the way transport service is provided, it is easy to

say that public transport is the way to go, but we must also know the cost associated with it.

Similarly, renewable energy would reduce our dependence on coal and reduce emissions, but

would come at a higher capital cost. The Calculator does not offer complete capital cost as the

infrastructure cost associated with a technology is not fully captured, but does give the cost of

electricity over the long run. Hence, IESS V2.0 is an improved version of the previous one in many

ways, but the most significant difference is the cost related information. Now, the user can see

more well informed choices as to the way forward for reduction in import dependence or

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emission reduction. However, the interest of different stakeholders would be different –

somebody may be interested in capital costs as it is not easy to obtain large doses of capital, while

others may be interested in cost to the consumer as adoption of technology is not easy if the shift

is for a more expensive one. The cost information herein meets the expectation more of the latter

than the former.